Business Insider spoke with Roche Pharmaceuticals CEO Daniel O'Day about how the two deals came together.

How majority stakes led to full-out deals

The Roche Group is made up of several businesses, spanning diagnostics to cancer-drug development, and it's had a longstanding relationship with both Flatiron and Foundation. Roche's Genentech arm had been one of Flatiron's early clients back in 2013. Then, toward the end of 2015, Roche led the company's $175 million Series C round.

As Flatiron was starting to fundraise near the end of last year, its leadership team started chatting more with O'Day.

"We sat down at the end of last year and said we can both be successful continuing to do what we're doing and working in partnership on our own," O'Day said. "But we both felt that we could accelerate each other's missions a great deal if we became one entity."

That same rationale, O'Day said, applied to Foundation Medicine.

A few years ago, O'Day started discussing funding with Michael Pellini, who was then the CEO of Foundation.

"So Mike and I sat down, and we said — they were also considering traditional funding rounds — and we said is there a way for the same rationale, expertise, and capital coming together, and that's when we decided to take a majority stake," O'Day said. Roche ultimately took a majority stake in Foundation in January 2015, which made sense at the time to O'Day over a full acquisition.

"At that time, Foundation Medicine was at a different state at their evolution. We firmly believed in them, but they were still really establishing their presence in the market," O'Day said. "So we thought majority share at that time would be appropriate."

Working with Foundation, Roche developed several tools to accompany the drugmaker's cancer drugs. Eventually, a full acquisition was on the table.

"We just came to a point this year where we said, 'It's worked well in majority ownership — why don't we take it to the full level?'" O'Day said.

Keeping autonomy

A Swiss pharmaceutical giant, a cancer-genetics company, and a New York tech startup don't exactly have the same work culture. To that end, as part of the Flatiron and Foundation acquisitions, Roche emphasized the importance of keeping the two companies autonomous.

"It's a unique model because although it's full ownership, as you know, we will keep them quite autonomous," O'Day said. "That's important for a number of reasons. They're different companies than Roche — different environments, different cultures, very entrepreneurial. We want to keep and respect that."

As a result of autonomy, both Foundation and Flatiron can still work with other pharmaceutical companies, as well as academic researchers. For example, Foundation is working with Bristol-Myers Squibb on tests that determine how many tumor mutations a particular cancer patient has as a way to see whether they might be a good candidate for BMS's immunotherapy treatments.

"You might say, 'Well, this is all good for Roche — why are you sharing with other companies?'" O'Day said. "I think it's a move that a leader in a field would make."

One way the data Flatiron and Foundation collect could come in handy for drugmakers is through clinical trials. For example, the data Flatiron collects on how cancer patients are responding to a certain drug regimen could be used in a clinical trial to simulate a control arm. In cancer-drug trials, drugmakers have to compare their experimental drugs with the standard way that particular cancer is treated. But if that half of the trial could be simulated, it could save drug companies like Roche time and money.

But virtual control arms are a long way from passing scrutiny from the Food and Drug Administration as a way for drugmakers to submit data on their experimental drugs. Having other drugmakers add evidence to why the FDA should allow it would help Roche make its case.

"If you're going to go to the FDA and get a new standard, you have to do that with a community," O'Day said. "The more companies we can get to work and to validate the data from Flatiron, the more we can change standards. And that'll be good for the whole industry, and that'll be good for us."